MANAMA: The Islamic insurance industry will really take off when governments in the region use takaful to cover their major development and infrastructure projects.
Currently the takaful industry is dominated by retail sales to individuals but it will have to become a product for corporates to really gain scale, according to Dubai-based firm DLA Piper's senior legal consultant Peter Hodgins.
He said that his firm, the world's largest law practice, has expanded to 75 lawyers in Dubai in just two years and was now expecting to have 200 by the end of the year with a number of specialists in takaful and Islamic finance.
He said that the expat non-Muslim market could also be a driving force to expand the industry.
"Takaful is growing fast but it is still very much a niche retail market," he said.
"It may be worth about $14 billion in seven of eight years, but you have to compare that with the traditional insurance market, which is worth more than $3 trillion."
"In the Middle East, I think we will see growing pressure for governments to adopt takaful when insuring projects," he said.
"There is already some market talk about some aviation companies in the region looking to get takaful rather than traditional cover.
"What the industry currently lacks is a re-insurance market. At present most Sharia boards accept that under the doctrine of necessity, it is acceptable for takaful companies to use traditional re-insurers, but this will probably change over the next 10 years as the industry expands."
He said that two of the industry's strong points, which would be attractive to non-Muslims was the principle of mutuality and the fact that takaful did not carry the baggage of a perception that the company would try not to pay.
"Whether it is true or not, traditional insurance companies are often seen as wanting to avoid making payouts," he said.
"The fact that as a mutual, a takaful company has a duty to its policy-holders that would prevent it from using technical arguments to avoid a claim is attractive to the non-Muslim community."
He added that the industry should look to non-Muslims to expand, particularly in building life insurance business.
"There are still some Muslims, who regard life insurance not to be halal whereas expats are already predisposed to purchasing life cover," he said.